2022 (8) TMI 273 - NAPA - GST

Profiteering - purchase of Flat - allegation is that the Respondent had not passed on commensurate benefit of Input Tax Credit (ITC) to him - contravention of provisions of Section 171 of the CGST Act, 2017 - interest - penalty - HELD THAT - It is clear from a plain reading of Section 171 (1) that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the DGAP's Report that there has been no reduction in the rate of tax in the post GST period; hence the only issue to be examined is as to whether there was any net benefit of ITC with the introduction of GST. On this issue it has been revealed from the DGAP's Report that the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period (April-2016 to June-2017) was 1.17% and during the post-GST period (July-2017 to April-2024 It was 13.52% for the project Axis Vedam''. This confirms that. post-GST. the Respondent has been benefited from additional ITC to the tune of 12.36% 13.52% (-) 1.17% of his turnover for the said project and the same was required to be passed on to the customers/flat buyers/recipients, The DGAP has calculated the amount of ITC benefit to be passed on to the customers/flat buyers/recipients as Rs. 40,94,480/- for the project 'Axis Vedam . the details of which are mentioned in Table- B - the profiteering amount of Rs. 40.94,480/- is with respect to 21 customers/flat buyers/recipients amongst all the customers as on 30.04.2020 in the project 'Axis Vedam . The list of 21 customers/flat buyers/recipients has been attached as Annexure 'A' with this Order, containing the details of the amount of benefit of ITC to be passed on in respect of the project Axis Vedam of the Respondent. Interest - HELD THAT - The Respondent is liable to pay interest as applicable on the entire amount profiteered, i.e. Rs. 40,94,480/- for the project Axis Vedam . Hence the Respondent is directed to also pass on interest @18% to the customers/ flat buyers/ recipients on the entire amount profiteered. starting from the date from which the amount was profiteered till the date of passing on/payment, as per the provisions of Rule 133 (3) (b) of the CGST Rules, 2017. Penalty - HELD THAT - The Respondent has denied benefit of ITC to the customers/flat buyers/recipients in his Project Axis Vedam in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act. That Section 171 (3A) of the CGST Act, 2017 has been inserted in the CGST Act, 2017 vide Section 112 of the Finance Act, 2019, and the same became operational w.e.f. 01,01.2020. As the period of investigation was 01.07.2017 to 30 04.2020, therefore, he is liable for imposition of penalty under the provisions of the above Section for the amount profiteered from 1.01.2020 onwards. This Order having been passed today falls within the limitation prescribed under Rule 133(1) of the CGST Rules, 2017.

Summary

Issues Involved:

1. Violation of Section 171(1) of the CGST Act, 2017.
2. Calculation of additional benefit to be passed on to recipients.
3. Methodology for determining profiteering.
4. Respondent's objections to the DGAP's methodology.
5. Compliance with anti-profiteering provisions in other projects.

Issue-wise Detailed Analysis:

1. Violation of Section 171(1) of the CGST Act, 2017:
The core issue was whether the Respondent violated Section 171(1) of the CGST Act, 2017, which mandates passing on the benefit of reduced tax rates or increased Input Tax Credit (ITC) to buyers. The DGAP's investigation concluded that the Respondent had indeed contravened this provision by not reducing the basic prices commensurate with the additional ITC benefits post-GST implementation, resulting in profiteering.

2. Calculation of Additional Benefit to be Passed on to Recipients:
The DGAP's report calculated that post-GST, the Respondent benefited from an additional ITC of 12.36% of the turnover for the project "Axis Vedam." This benefit was not passed on to the buyers, and the total profiteered amount was determined to be Rs. 40,94,480/-, including GST. The calculation was based on the comparison of ITC available pre-GST (1.17%) and post-GST (13.52%).

3. Methodology for Determining Profiteering:
The Respondent argued against the methodology adopted by the DGAP, stating that the calculation of ITC as a percentage of revenue without considering the expenditure was improper. The Respondent also contended that the increase in ITC was due to higher tax rates in the GST regime. However, the Authority found that the methodology used by the DGAP was appropriate and based on sound principles, as it accounted for the benefit of additional ITC that should have been passed on to the buyers.

4. Respondent's Objections to the DGAP's Methodology:
The Respondent raised several objections, including the lack of a prescribed methodology under the law, the improper calculation of ITC as a percentage of revenue, and the inclusion of increased tax rates in the ITC benefit. The Authority dismissed these objections, stating that the computation of profiteering is a mathematical exercise based on the parameters provided in Section 171 of the CGST Act, 2017, and the methodology adopted was consistent with previous cases upheld by the Authority.

5. Compliance with Anti-profiteering Provisions in Other Projects:
The DGAP's report indicated that the Respondent was executing other projects under the same GST registration, raising concerns about compliance with Section 171(1) in those projects as well. The Authority directed the DGAP to investigate all other projects of the Respondent to ensure compliance with anti-profiteering provisions.

Conclusion:
The Authority concluded that the Respondent had profiteered by Rs. 40,94,480/- for the project "Axis Vedam" and ordered the Respondent to refund this amount to the buyers along with 18% interest. The Respondent was also directed to reduce prices commensurate with the benefit of ITC received and comply with the anti-profiteering provisions in all other projects under the same GST registration. The jurisdictional CGST/SGST Commissioner was tasked with ensuring compliance and reporting back to the Authority.